CHAPTER - IV

AN OVERVIEW OF BENEFITS AND DISADVANTAGES OF WTO TO INDIAN ECONOMY

The agreement is made up of 29 separate agreements', memorandums, declarations and other ministerial decisions covering areas that had not been included in the GATT. Some important agreements, which have significant implications for developing and least developed countries in general and the Indian economy in particular are -

8. Agreement on Agriculture (AOA).

8. Trade related Intellectual Property Rights (TRIPS)

8. Agreement on the application of Sanitary and Phyto Sanitary (SPS) Measures and the Agreement on Technical Barriers to Trade (TBT).

8. General Agreement on the Trade in services (GATS).

8. Agreement on Trade Related Investment Measures (TRIMS).

1. AGREEMENT ON AGRICULTURE (AOA) :

The AOA aims to introduce certain ground- rules for trade and support policies involving agricultural products. In concrete terms, it aims to limit the use of agricultural policy instruments that have a negative effect or distort the world trade. The Agreement covers three types of agricultural policy instrument viz,

8. Protection mechanism at borders,

8. Export supports, since they directly affect trade and

8. Production supports, which influence production volumes and prices and therefore affect trade indirectly.

The AOA included in the WTO agreement came into force in 1995. It is being implemented over a period of 6 years for developed countries and 10 years for developing countries. The three components of AOA are market access, domestic support and export competition. Market access aims to improve agriculture products' access to all national markets by making the protection levels more transparent, reducing them further and opening up domestic markets to imports. It covers tariff (custom duties) and non- tariff (import quotas, variable duties paid upon entry into a country minimum import prices and import licensing) barriers, which restrict the international trade. Domestic Support is distinguished into green, blue and amber boxes according to their level of trade distortion. The green box subsidies are not subject to the reduction commitment and may even be increased. The blue box subsidies are also not subject to the reduction commitment but cannot be increased. The amber box needs to be reduced by 20 per cent for developed countries and by 13.3 per cent by developing countries over the implementation period. Export subsidies are mostly used by Europe and US and not by majority of the developing countries. Such subsidies have negative effect on world markets pushing down prices and making it difficult to predict price levels, and discourage the production of importing countries because of unfair competition. A recent study by IFPRI, Washington has concluded that export subsidies by the developed countries

affect the income of farmers of the developing countries to the extent of US$ 40 billion per annum. Its effect on Indian farmers is about US$1.1 billion per annum.

The provisions of AOA have major implication on Indian agriculture in general and on India's food production, oilseed sector sugar industry and dairy sector in particular.

INDIAN AGRICULTURE:

For Indian agriculture, the most important implication has been under the commitment for market access. The number of products on the list of quantitative restrictions was above 8000 in the pre-WTO period. With the list of such commodities almost evaporating after the WTO agreement, a great threat of foreign agriculture commodities flooding the Indian markets is being perceived due to their relatively low prices. However, India has fixed high bound tariffs for agricultural commodities at 100 per cent for primary products, 150 per cent for processed products and 300 per cent for edible oils. India can implement these tariffs as safeguards, which are considered sufficient to protect the relevant commodities against cheaper imports due to high domestic support. However, the failure of market intelligence and delayed implementation of the tariffs may adversely affect the domestic profitability of production (Chand 2000, Gulati 2001). The presently levied tariff rates are much below the bound rates and can be further revised in response to the production- consumption gap in case of some commodities.

The AOA commits members to open up access to their agricultural markets, cut trade- distorting domestic support and reduce export subsidies. It contains precise rules on the progressive dismantling of subsidies. Yet this only applies to the countries, which have hitherto subsidized their farm products. Countries, which have not subsidized these product up to now are allowed to pay subsidies for a specific period but only up to 10 per cent of the market price. This rule creates substantial inequalities. It means that India can pay around US$ 1 billion in support to its farm sector, whereas, the OECD countries can subsidize their farmers to the tune of US$ 320 billion annually, with WTO's blessings (Wilcke2002). This threatens domestic profitability and production of the food grains in India as majority of its population is still engaged in agriculture and a significant proportion is surviving just around the 'poverty line.' The product support was negative by as much as 35% of the value of output as the MSP provided was less than the external reference price determined under the AOA (Gulati 2001). The international prices have again been rising substantially after 2000 and these figures are again expected to the negative. As the entire expenditure on food security (PDS and public stock holding), payments under regional assistance programmes and subsidies paid to resource -poor to low- income farmers are exempt from domestic support reduction commitment, there is no problem in providing subsidies to agriculture sector as this support still comes to be negative. However, little positive can be expected due to ever shrinking resources with government. The export subsidies as mentioned in AOA, are however, not provided in India.

The major effort on the domestic front ensuring the viability of Indian agriculture has to be focused on raising productivity by stepping up public investment. The development of infrastructure like irrigation rural electrification, roads and markets has been a major causality sector has declined the nineties. The investment in the agriculture sector has declined to 1.3 per cent of the GDP in 2001 as compared to 1.6 per cent in 1994. There is a strong complementary relationship between public and private investment and inadequate

public investment could lead to a lower private investment then desired. Further, the combined expenditure by the state and central government on agriculture research and education stagnated around 0.5% of agriculture GDP (Hanumantha Rao, 2001). The present government under the leadership of Dr. Manmohan Singh has taken several steps to boost investment in agriculture. Yet, there is bleak possibility of any major success on this front due to ever shrinking investible resources with the government.

INDIAN OIL SEEDS SECTOR:

Indian oilseed sector, which was protected to attain self- sufficiency, was opened up in 1990s with economic liberalization and signing of WTO. It has major implications for the producer farmers as well as the consumers. The import of oil at low tariff level has brought down the domestic prices of edible oils and oilseeds. This fall in prices has surely benefited the consumers who pay almost half the prices for the refined oil than that could have been in the absence of imports of edible oils. This fall in prices has adversely affected the economics of oilseed crops in the country. Thus, the government has to chalk out a two pronged strategy aimed at optimizing the benefits of the producers as well as consumers. The government has increased the tariff level across the board for all oilseeds. Though the current level of protection may be sufficient it cannot be said for the future as the competitiveness is not static but dynamic. Therefore, a tariff band can be fixed which would help the policy makers to respond quickly to changes in border prices of imports. As India imposes ad valorem tariff on imports, the fall in international prices will lead to the fall in tariff amount. Therefore, it would be in India's interest to impose specific tariff (Singh and Asokan, 2000). However, the government policy should seriously aim at increasing the productivity of the oilseed crops (in terms of yields and oil contents), reducing the cost of production, improving the processing, transport and marketing infrastructure to achieve the overall competitiveness of India oilseed system to meet the challenges under the new international trading environment and to benefit the consumers in terms of lower prices.

INDIAN SUGAR INDUSTRY:

The global sugar market is very thin because the major producers of sugar are also its major consumers. Only about 17 per cent of the world's total sugar production enters into the international market resulting in wide price fluctuations even with a small change in the global demand or supply situation (Datta 2000). Sugar has low price and income elasticity’s of demand. Rapid growth in the market of alternative sweeteners, especially in the developed countries, has further dampened the global market prospects for sugar. Still the global market is quite far from a competitive structure. The market is highly distorted in major developed countries like EU. USA and Japan in the presence of quota and tariff restriction, beside large export subsidies. Since the world prices of sugar have been kept artificially low, Indian price is generally above the world the world prices, thus creating a glut situation at home.

At present, Indian sugar industry is not export - competitive. Due to political compulsions, the price paid to the farmers for sugarcane is very high compared to the statutory minimum price (SMP), which adversely affects the competitiveness of the industry. In Haryana, the sugarcane farmers are being paid Rs.1100 per tonne, being the highest price not only in India but also in the world. It is the reason that most of the cooperative sugar mills are in the red all over the country and sugarcane arrears of the farmers are pending to the extent of Rs.2000 crores. Hence, politics and economics cannot go together. At the SMP, the industry will be

very competitive even with 30 per cent levy quota and import of sugar under OGL(lbid).the efforts should be made to integrate the firm and farm sector for increasing competitiveness of the sugar industry (as for example the South African Sugar Association SASA). Increase in installed capacity and crushing period duration has positive impact on the competitiveness of the industry up to a certain level. A very long crushing season, or too large a unit, however, may have adverse impact on competitiveness in Indian industries. More recent sugar mills with newer machineries and generally better recovery rates also display greater competitive strength. However given the highly regulated policy environment of the industry and poor global prospects, this result has not included entrepreneurs to make massive investments in the sugar industry.

INDIAN DAIRY SECTOR:

For India, the expected benefits of fair and competitive trade liberalization within the framework of the AOA have not been realized. On the contrary, the subsidy policies still being applied by the OECD states, pose a major threat to India's smallholder farming and above all, its dairy sector. The export subsidies by OECD countries for skimmed milk powder amounted to 50 per cent, for whole milk powder to 60 per cent and butter and butter oil to 63 per cent. Indeed the EU subsidized butter oil to the tune of the 93 per cent, while the USA's subsidy amounted to no less than 161 per cent. Due to massive subsidies by the EU and USA the world market prices of buffer oil dropped below the Indian price, with the result that Indian imports of butter oil have risen from a previous figure of 282 tonnes in 1995 to 18000 tonnes in 2000. India now fears that this subsidy policy could be extended to other dairy products as well, possibly leading to a further fall in prices, the domestic market price of butter oil has already dropped by 15 per cent since 1998 (Singh 2001, Wilcke 2002).

Major milk- exporting countries such as the EU, Australia and New Zealand may well be prompted to exert more downward pressure on world dairy prices in order to secure access to the Indian market with its population of over one billion and very limited scope to impose protection measures with the WTO. The Indian government has signally failed to capitalize on the various protection measures available to India within the WTO framework. A further threat to the Indian dairy sector is its lack of competitiveness compared with foreign milk products due to its lower quality. Raising the milk quality by means of better hygiene in production and processing, improvements in animal health and the introduction of new animal breeding programmes should be the key priority for the future along with further increasing milk output. India is not a milk exporting country, which could compete successfully on the world markets with major rivals such as New Zealand. Australia and the EU. To do so we require substantial investments in quality improvements the smallholder dairy farming structure in India, where dairying is still a complementary activity with the crop farming, limits the possibilities of private investments for such purpose and hence limited success in quality improvements. A focus on exports would also conflict with India's philosophy of self- sufficiency. For agricultural policy, still shaped first and for most by the experiences of the 1960's and 1970's, primarily aims to ensure the country's self-reliance.

2. TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPS):

Prior to the TRIPS Agreement, the intellectual property rights concerning the trade (that included patents, utility, trade market and industrial designs) were governed by the Paris Convention of 1883, which was revised up to 1967. The Paris convention was fairly liberal

and left the subject matter of patent, terms of patent and the duration of protection to be decided by the concerned national governments. The TRIPS Agreement covered eight types of intellectual property viz, patent, trademark, copyrights, industrial designs, integrated circuits, geographical indication, protection of undisclosed information and control of anti-completion practices in contractual licenses. It is the area of patent where the advanced countries have a distinct advantage and a decisive lead and poses threat to India (Sindhu 1999). TRIPS require all member countries to provide for strong and 20 yearlong patent protection to processes as well as products of both domestic and foreign innovations in all field including agriculture. It also erodes the authority of the governments to demand compulsory licensing of essential goods in public interest and to regulate the prices.

Till recently developing countries like India largely kept their agricultural sector outside the purview of IPR regimes to make technology affordable to poor peasants. Developing countries are thus provided a period to often years by TRIPS to reform their national IPR legislations. Till then, the developing countries must provide for exclusive marketing right (EMRs) to innovations that have obtained patent protection and marketing approval in any WTO member nation.

TRIPS AND INDIAN AGRICULTURE:

Recent worldwide expansion of I PR regimes has serious implications for social, ecological and economic sustainability of Indian agriculture, public sector research institutions and the farmers (Ravishankar and Archak 2000).However even in the absence of IPRs, these public sector institutions have promoted narrow genetic and technological base over the Last few decades, resulting in severe loss of agro biodiversity and traditional farming practices. IPRs might further enhance this erosions besides fuelling bio-piracy and retard technology transfer (Gadgil and Utkarsh 1999). Recent controversies over terminator and Bt-cotton technology reveal the lack of public participation in the technology evaluation. However, the International Convention on Biological Diversity (CBD) has opened up vital spaces that we must occupy to bring in some benefits within the I PR framework, which we must inevitable accept. India must harmonize provisions of its patent act as well as proposed legislation on plant variety protection and biological diversity. All these legislation must make it mandatory that all IPR applicants disclose genetic material accessed, its country of origin and prior public knowledge. This information could be used to examine the novelty of innovation and share the resultant benefits including technology transfer with providers of the genetic resources or relevant knowledge, for promoting their conservation. To protect flock knowledge and practices, new forms of IPRs must be instituted such as registration of land races and petty patents, besides information and material transfer agreements. These measures need to be complemented by an ongoing programme of the documenting knowledge and practices. This information must then be widely shared through databases and networks with IPR authority’s entrepreneurs and farmers, for application of folk knowledge and practices. This would also help in dissemination of appropriate technologies and promote prior public appraisal in an informed fashion.

TRIPS AND INDIAN PHARMACEUTICALS:

One immediate consequence of the TRIPS Agreement will be a sharp increase in the prices of drugs invented after the new product patent laws come into force in 2005. The prices of four largest selling 'on patent drugs' are more than 10 times higher in Pakistan, UK and USA,

which recognize the product patents (Table l). Thus initially the TRIPS Agreement will only affect a small proportion of drugs available in India.

TABLE - 1

INTERNATIONAL PRICE COMPARISON FOR FOUR LARGEST SELLING ON PATENT DRUGS IN INDIA

S.No. Drug Name The drug is following times costlier than in India

1. Ranitidine 14.1 26.1 56.7

2. Famotidine 14.0 27.1 54.0

3. Ciprofloxacin 08.3 10.3 15.4

4. Norfloxacin 03.2 06.5 23.2

Average overall drugs09.9 17.5 37.3

However, the impact will gradually increase over time as virtually all new drugs entering the market in future would be patent protected and many of the old drugs can be expected to become infective overtime as the disease causing bacteria or viruses develop resistance to them, thereby, forcing people to switch to the new, more expensive drugs. Often, drug prices have little to do with the cost of production, or even in invention. The new combination drug therapy for AIDS patients being marketed in western countries at about US$ 10000, US$ 15000 per patient per year has recently been offered by an Indian company CIPLA for as little as US$ 300( Agarwal and Saibaba 2001). Thus, unless specific procedures or institutional arrangements are created to allow the price differences in developing and developed countries, drugs will be greatly overpriced and will be beyond the reach of a large fraction of population in developing countries. An importantly argument offered by the supporters of the TRIPS agreement regarding the world welfare in the medium to long run in that the increased patent protection for inventors is necessary in the increasingly globalized world economy where flow of products among countries has increased rapidly so that the lack of patent protection in developing countries may have serious consequences for the overall profits if pharmaceutical firms. This argument may have some merit even though the benefits may take some time to become visible. Thus, the TRIPS agreement may lead the pharmaceutical industry to do greater research into many of the serious diseases that largely afflict the populations of developing countries. This should bring benefits to developing countries in the medium to long run. There also exist some specific problems with the TRIPS agreement that may harm the Interests of the developing countries including India.

One such problem is related to the patent regime of WTO regarding a dispute over the domestic bio-diversity legislation. Appropriate legal and institutional means must be provided for recognizing the rights of indigenous communities on their traditional knowledge about their biological resources and traditional remedies, many of which are not well documented yet in written form. It will be a gross abuse of patent laws if such knowledge of, say, various traditional herbal treatments of one country are given patent rights in other countries where such knowledge may not be well known. It was shocking news to most Indians when some US firms tried to patent basmati rice, the famous Indian variety of rice and some traditional remedies based on neem and turmeric which have been a part of the

traditional ayurvedic medicine system in India since ancient times. Very expensive legal and socially wasteful procedures are needed to get such patent revoked.

AGREEMENT ON THE APPLICATION SPS MEASURES AND THE AGREEMENT TBT:

The SPS and TBT agreement involve standards aiming to protect the health and lives of people, animals and protect plant life, as well as technical standards such as those on packaging and wrapping. Such standards are being increasingly developed in the name of meeting consumer's needs. The WTO regulates the use of such standards to prevent them being used as hidden barriers to trade.

Environmental and health related standards and regulations in developed country markets have the potential to create barriers to trade. India has to adjust their production processes in response to changing environmental regulations in developed countries. Measures such as pesticide maximum residual levels (MRL) permitted in foodstuff, emission standards for machines, the packaging requirements etc. have exerted pressure on exporters, and however, what remains to be seen is the extent of impact of these measures on trade. It is now widely believed that these technical measures impede the trade of developing countries, either implicitly or explicitly. The compliance with external eco-standards often necessitates the import of inputs and technology, which are likely to raise the cost of production and price of output. Since, the competitiveness of many Indian exports is based on the price factors, such a price rise could hamper India's competitiveness. The low-valued products may be relatively more vulnerable. The sector affected by external environmental requirements are found to be India's vibrant export- oriented sectors such a as leather and leather products, textiles, chemicals, marine products, tea and other agricultural products.

AGRICULTURAL AND MARINE PRODUCTS:

The share of agricultural exports in total Indian exports declined from 30 to 22 per cent over the last decade. A number of agricultural products from India are facing SPS related problems (Table-2). Some of the quarantine restrictions for fresh fruits and vegetables imposed by many countries are also not based on scientific justification. The compliance cost for exporters at times is prohibitively high. Food and agriculture form an important part of exports from India. Recently, attempts have been made to widen the range of exports resulting in the promotion of high value- added items such as processed agro and marine products. There are growing concerns that non- tariff barriers may undermine the benefits of free access to the OECD markets' stringent and sometimes- arbitrary environment related regulations. Over the Period August 2000 to July 2001, there were significant rejections of imports from South Asia due to microbiological contamination and filth. More than 40% of the rejections of exports from India were due to this reason (Chaturvedi and Nagpal 2003). Other than those inadequate food additives, the presence of pesticides residual and heavy metals, and low-acid canned foods are commonly cited reasons for contravention. More sophisticated monitoring and testing facilities, and therefore, more costly procedures, are required for meeting these regulations.

On top of that, the cost of rejection at the border can be considerable as it includes loss of product value, transport and other export cost, and product re-export or destruction.

The export of marine products had grown significantly as one of the important items of India's export from a few million US dollars in 1961-62 to US $ 1106.9 million in 1997- 98, accounting for approximately 3.32 per cent of the total export from India. In 2001-02, it had as share of 3.13 per cent in total agricultural exports (Ibid). The US ban on Indian shrimp products was a unilateral restriction based on environmental reasons. The US lost the case at WTO when India and other affected countries challenged the ban but it adversely affected the Indian shrimp exports.

TEXTILE EXPORTS:

Textile exports account for 55 per cent of India's export earnings. This sector takes up 4 per cent of GDP and 1 per cent of industrial products and employs 15 million people. Around 40 per cent of India's textiles are directed to the EU, but the stringent environment conditions in developing countries have adverse consequences for India's exports. The use of dyestuffs such as cobalt blue and sulphur black have been totally banned in the international market. Though viable substitutes have been explored, switching over to them entails investments of over US dollar 13 million, mainly for the up-gradation of technology and new treatment plants in order to obtain the requisite quality (lbid). It will adversely affect the cost competitiveness of the Indian industry.

LEATHER INDUSTRY:

India, which has largest holding of livestock in the world, is expected to play a dominant role in the leather industry, which is spread over the organized as well as unorganized sector. Exports from the leather sector today account for above 4.3 per cent of total export. Germany is the largest single export market of Indian leather goods besides France, UK and Italy. On environmental standards, the leather industry face problems on both the domestic and

external fronts. Restriction on the use of certain chemical dyestuffs and several other mandatory regulations in major export, markets pose serious problems for the leather sector. The increasingly stringent export standards have contributed to a rise in the cost of production, especially in the leather sector where costs using the more environmental friendly methods are nearly three times higher.

GENERAL AGREEMENT ON TRADE IN SERVICES (GATS):

The general Agreement on Trade in Services (GATS) was one of the agreements signed under the purview of WTO in 1995. The central idea of GATS is that progressive liberalization of trade in commercial services will promote economic growth in W TO member countries.

GATS, HIGHER EDUCATION AND EDUCATIONAL SERVICES:

The system of higher education within India is plagued with appalling disparities. These existing disparities of availability, quality and costs could skew the pattern of future growth. Private participation in education has already created a polarity, which would only worsen international as international participants enter the scene. The higher concentration of institutions is already leading to a large- scale education migration within the country. This educational exodus will exacerbate as more and more institutions open the same areas. Opening up of the sector to international institutions, caused by the trade agreement, could deepen the regional disparity, mainly because the areas where the infrastructure for higher education is already available, would be benefited more. At present, India does have some areas of potential opportunities in higher education, which could be supplemented with appropriate policies. However, in an unequal and dissimilar higher education scenario, the potential opportunity areas may further polarize the sector (Sahni and Kale 2004). In fact when marketization takes place in an area as important as education, even the earlier and existent policies may get side-lined. The effects of such skewed development can last long and will be difficult to retrace one it sets in.

As per article 1.3 of GATS, government services remain outside the purview of GATS, provided they are not meant for commercial purpose and have no competition from private sector suppliers. Hence, educational services come under GATS trade liberalization since the private sector service providers are in direct competition with government-run institutions. Shrinking budgetary resources for education in no way are helping the cause of promoting knowledge in India. Even if the government substantially increases its educational spending via deficit financing, it amounts to an inflation tax. Hence, private sector participation and trade in educational service seems imperative. With abundant qualified human resources India, must export educational product that use our human resources intensively. India has to pay serious attention to the GATS agreement or applicable to educational services, identify opportunities and competitiveness in various sub-sectors and negotiate WTO commitments accordingly (Deodhar 2001). India has long experience of providing educational testing services and some world-renowned names are such as Common Admission test (CAT) of the IIMs, Joint Entrance Examination (JEE) of NTs, and NET examination of CSIR- UGC and Graduate Aptitude Test in Engineering (GATE). If the experience of these services is adapted for various fields and if such services can be offered on round the year basis with sufficient computerization and use of the Internet facilities, India stands to gain from liberalization of such services.

E-COMMERCE:

The InfoTech industry in India grew from $ 50 million to $5 billion in the 1990s and according to the ministry for IT may grow to $100 billion by 2010, making as a new economy of India. Indian could earn $1 trillion annually by sale of information work alone on the basis of outsourcing for the industrial economies which have white collar jobs valued at $10 trillion assuring 50 million persons and $ 20000 as annual remuneration. Hence, WTO provides wide opportunities for the Indian IT sector to grow and earn foreign exchange for the country. The facilitative role played by government to boost this sector need to be continued to realize higher goals of income, employment and foreign exchange earnings from this sector.

AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMS):

It aims to get rid of certain practices imposed on companies by the State and on which their activities or admission to national market depend (e.g. the commitment to purchase or use products of national origin). India can benefit from TRIMS by capitalizing on the key areas where increased investments can contribute immensely to the economic growth in future and where scarce supply of capital exists from the domestic resources. The present requirements for capital for upgrading, expanding and modernizing the agricultural, industrial and services sector in India are so large that we just do not have the resources to invest in them. For example in the telecommunication sector, the domestic resources (public and private) would not be sufficient for necessary capital investments and also the foreign investment is required for concomitant technological and managerial expertise, which may not be present in India. Even in respect of financial services and insurance more FDI is welcome.